Nomura: 75bp Hikes Coming In June And July

Nomura sees a 50bp rate hike at the May meeting accompanied by a formal QT announcement, with the door kept open to future 75bp hikes (which it will deliver in June and July).

• QT to start in mid-May, with initial caps of $15B Tsy / $10B MBS, reaching $95B total by mid-August.
• Statement: On forward rate guidance, may suggest that additional rate increases are likely in order to “return policy to a more neutral setting expeditiously.”
• Likely to acknowledge the FOMC could adjust balance sheet plans should economic conditions warrant, but the bar will be quite high.
• Press conference: Powell to continue the Fed’s hawkish pivot by repeating recent concerns about the inflation-generating process and overheating labor markets. Won’t endorse a potential 75bp hike, but a comment that they will not rule anything out would be noteworthy, as would a response that includes a reference to the 1994 hiking cycle (the last time the Fed hiked by 75bp).
• Future action: 75bp hikes in June and July, 25bp in Sep, Nov, Dec, Feb, Mar, May to 3.75-4.00%. QT to end after Q4 2023; MBS sales starting January 2023.